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When Funds don't Declare Dividends

Dividend declaration depends on the available distributable surplus...

I hold units of Templeton India Income Builder Account (annual dividend) since last 10 years. The fund has not announced any dividend since 2009. Also, the fund has been rated four-star by Value Research. I am unable to understand why the fund hasn't declared any dividend since last four years. Should I stay invested in the fund or exit, considering that the NAV is only Rs 14?
- Kashyap

You must understand that fund houses are not lawfully bound to declare dividend. It is only a matter of discretion and availability of distributable surplus to declare dividend. Also, as per a recent regulation, fund houses can only pay dividend from the realised gains.

Templeton India Income Builder Account fund has not declared dividend after March 2009 under its yearly dividend option. Therefore there is a possibility that the fund didn't have a distributed surplus under the annual dividend option. Star-ratings rate the growth option of a fund. Under dividend option the fund distributes a part of the gains as dividends. So the returns are calculated after adjusting fund NAV for the dividends paid. Funds are rated on the basis of these returns. The four-star rating of the fund implies that it has done better than its peers over the long-term. The fund is ranked 11th among 76 funds in its category over a three-year period. It has delivered returns at 9.40 per cent, compared to the 8.51 per cent of the category average in the three-year period.



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